Accounting /Financial Services
Budget 2024-25: Impact on Taxes
Budget 2024-25: Impact on Taxes
The budget has proposed some important modifications in the tax system for middle-income earners.
- First, an increase in the standard deduction from Rs. 50,000 to Rs. 75,000 for the salaried class of taxpayers and from Rs. 15,000 to Rs. 25,000 for family pensioners will benefit about four crore income taxpayers.
- Second, a change in the personal income tax slab structure will create further savings for the taxpayers.
- The budget proposes three important changes in the direct tax system pertaining to the stock market:
- an increase in the rate of Security Transaction Tax (STT) on futures and options of securities is proposed to be increased to 0.02 percent and 0.1 percent, respectively;
- an increase from 15 percent to 20 percent on short-term capital gain (STCG)
- an increase from 10 percent to 12.5 percent on long-term capital gain (LTCG) tax
- an increase in exemption on LTCG from Rs. 1 lakh at present to Rs. 1.25 lakh.
The idea of an increase in the STT, which seems to have arisen from a paternalistic argument to protect retail traders, will apparently increase distortions in the stock market. An enhanced rate of STT, along with a number of other existing charges, will result in a lower number of F&O contracts, which in turn will hamper the discovery of stock prices further. A widening of the wedge between LTCG and STCG from 5 percent to 7.5 percent may drive away many retail traders and investors.
In India, the personal income tax system is highly distortionary, with a high marginal tax rate of 30 percent along with cess and surcharge. The concessions in the personal income tax proposed in the budget are too late and too small to relish. Finance minister also mentioned a long-pending need for a comprehensive review of the Income Tax Act, 1961, which is fraught with too many concessions, deductions, exemptions and tax preferences that often result in tax avoidance, disputes and litigation. An overhaul of the Act is urgently required to make the direct tax system in the country simple, transparent, easy to understand for the taxpayers and easy to administer for the tax authorities. This will significantly reduce the compliance costs for the taxpayers and administrative costs for the tax departments. Further, marginal tax rates need to be reduced further to reduce distortion and deadweight loss.
On the indirect tax front, the budget has proposed to reduce basic custom duties on gold, precious metals, steel, copper, chemicals, selected medicines and medical equipment, mobile phones and parts, marine products, and solar energy-related parts. Lithium, copper, cobalt, and rare earth elements have been fully exempted from custom duty that will help in reducing the cost of battery production in the country.
CA Amol Gawande, JNV Wardha, Maharashtra (Entry Batch -1998)
+91 7875087556
Email : caamolgawande@gmail.com
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